Incident: On June 27, 2024, the company announced that it has been designated for a seat assembly project by a leading NEV OEM to develop and produce front, middle, and rear three-row seat assembly products for customers. According to the customer plan, the project is expected to begin in July 2025, and the project life cycle is 6 years, with an estimated total life cycle amount of 3 billion yuan. The new target project is to add orders from leading customers.

This year, the company added a number of passenger car seat mass production projects, which is a critical stage in the business from 1 to N. We expect that as mass production of the new project climbs and reuses the production and cost reduction experience previously accumulated at the Hefei plant, new plants such as Changzhou are expected to achieve better profitability. At the same time, the company has previously announced that it has been designated for the German BMW passenger car seat assembly project, and it is worth looking forward to other overseas targets. In terms of growth rate, we believe that in the short term, seat-side profit release is expected to exceed expectations after new projects are put into operation in 2024. At the same time, the new targeted catalytic process is worth looking forward to, achieving the target of 1 million vehicles per annum. In the medium term, we will achieve mass production overseas from 0 to 1.

The company and Grammer will establish a new joint venture in Europe (the company holds 80% of the shares and Grammer holds 20% of the shares) to expand the global seat business of European OEMs such as BMW. Over the long term, the gradual accumulation of mass production experience is expected to become a core domestic seat company, while supporting more overseas customers under Grammer's endorsement.

2024 is an important time for the company's growth, and the certainty of the inflection point in performance is gradually becoming clear. In 2024, we will focus on implementing the company's core management initiatives to achieve a margin of certainty and growth, including: 1) North America: Improving management capabilities through various methods. 2) Europe: We believe that after the acquisition in 2019, the company's integration of Grammer was based more on the overall direction of Grammer, such as the management organization structure, etc., but the current integration is based on a deeper understanding of Grammer, formulating and implementing more detailed and lean management requirements, such as the pursuit of higher efficiency and lower costs for production capacity adjustments. Previously, capacity adjustments were mainly aimed at loss-making factories. The “learning costs” of domestic parts companies going overseas are inevitable. If they want to wear the crown, they must bear the burden. Management has always actively integrated overseas and placed emphasis on reducing costs and increasing efficiency. We expect that the results of the in-depth reforms in Europe starting in 24Q3 will gradually be reflected on the financial statements side. In addition, in early 2024, the company replaced some loans from Germany's Jifeng and Grammer, and it is expected that the reduction in financial expenses starting 24Q2 will gradually be reflected on the reporting side. 3) Seat business: Try to make further breakthroughs, including obtaining targets from core customers, reducing costs by improving self-control rates, and actively promoting globalization.

Investment advice: We believe that the company will eventually make gains in the path of integrating Grammer and strengthening large passenger car seat assemblies, and that Hakuba, which is replacing domestic products with global products, will eventually be crowned. We maintain the company's 2024-2026 net profit forecast of 460 million, 1.0 billion yuan, and 1.32 billion yuan, corresponding to PE 28, 13, 10 times, and maintain a “buy” rating.

Risk warning: macroeconomic fluctuations, exchange rate fluctuation risk, equity pledge risk, risk of further asset depreciation, integration falling short of expectations, market and customer development falling short of expectations, passenger car seat development falling short of expectations, etc.